2 Methodology and Data
2.1 Data
Our analysis covers the German economy and its banking system over the period 1994
to 2010.3 Bank balance sheet data are collected from the unconsolidated balance sheet
and income statement reports which all banks report to the Bundesbank annually. Our
measure of bank risk is constructed from the confidential distress database. We complement
the bank-level data with macroeconomic data at the county level obtained from the
German Federal Statistical Office. We apply a very thorough merger treatment to the
dataset: After the merger of two banks we artificially create a third bank (for the time
after the merger) in the dataset.4